NY futures ended a very boring week slightly lower, with December giving back 99 points to close at 87.55 cents.

Even though last week’s rally looked impressive on the chart, it was unconvincing due to the lack of volume behind it. This week was no different, as the average daily trading volume continued to drop to just around 16,500 contracts, with the market settling the last six sessions in a range of just 99 points, between 87.55 and 88.54 cents.

Futures open interest has increased slightly and amounted to 25.8 million bales as of this morning, which is around 0.2 million bales more than a week ago. When we look at the daily trading volume of 1.65 million bales in relation to open interest, we get a number of just a little over 6%.

This means that there are simply not a lot of players in the game right now, which makes it difficult to anticipate the market’s next move. On the long side we have speculators, who despite a 1400-point drop in the spot month reduced their net long by only around 3.48 million bales since mid-June, from 12.22 to 8.74 million bales. In other words, they seem to have a lot more staying power than we thought and they have started to add some new longs. However, they are definitely aware of the lack in volume and are therefore treading carefully.

On the short side there is the trade, which continues to hold on to a rather substantial net short position of around 16.50 million bales, most of which is tied to unfixed on-call contracts. There are currently 14.93 million bales in unfixed on-call sales vs. 4.17 million bales in unfixed on-call purchases. Despite the big drop in the market four weeks ago, most mills have been holding out for lower prices and are therefore in no hurry to chase the market higher at this point.

As long as the production outlook for the major crops holds up, there is no reason for trade shorts to panic. At the moment crops in the US and India seem to be on course to meet or exceed current USDA projections. Most of Texas has received some helpful moisture over the last two weeks and apart from the abandoned dryland acreage the crop seems to be in decent shape. We currently have Texas at 6.6 million bales, which compares to 9.2 million bales a year ago. Since the Mid-South and Southeast seem to produce more than last season, we feel that the current USDA estimate of 18.5 million bales is too conservative. We are therefore going with a crop of 19.25 million bales at this point.

US export sales were once again impressive last week, as 339,700 running bales of Upland and Pima cotton were added for all three marketing years combined. Participation was broad-based with 19 markets buying, while shipments of 239,700 running bales went to 23 destinations. Shipments were slower than anticipated for a second week, which was probably the reason behind the softer market today.

For the current season we now have commitments of 17.5 million statistical bales, of which around 15.1 million bales have so far been exported. With less than 3 weeks of data to go, it is unlikely that exports will reach the 16.2 million bales USDA estimate. For next marketing year we now have commitments of around 6.5 million statistical bales and then there are an additional 1.2 million bales on the books for the 2019/20-season.

So where do we go from here? The low volume shows that the major players remain sidelined for now. After last week’s rebound speculators have no reason to abandon their long position, while trade shorts are patiently waiting for a break in prices. Until something changes the status quo, we anticipate more of the same boring sideways action. Support seems to have moved up to around 84/85 cents, while resistance is at around 89/90 cents. Expect the market to trade within these boundaries in the foreseeable future!

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